Banking News

RBI cuts the policy repo rate from 6.75 per cent to 6.50 per cent, Reverse Repo at 6.0%

RBI cuts the policy repo rate from 6.75 per cent to 6.50 per cent, Reverse Repo at 6.0%

RBI in its First Bi-Monthly Statement with regard to ‘Monetary and Liquidity Measures’ made on 05.04.2016 decided to cut the policy repo rate under the liquidity adjustment facility (LAF) under the liquidity adjustment facility (LAF) by 25 basis points from 6.75 per cent to 6.5 per cent. Apex bank

as well reduced the minimum daily maintenance of the cash reserve ratio (CRR) from 95 per cent of the requirement to 90 per cent with effect from the fortnight beginning April 16, 2016. However, the Cash Reserve Ratio (CRR) remains unchanged at 4.0 per cent of the NDTL.

The bankers bank would continue to provide liquidity as required but progressively lower the average ex

ante liquidity deficit in the system from one per cent of NDTL to a position closer to neutrality; The narrow policy rate corridor from +/- 100 basis points to +/-50 Basis points by reducing the MSF rate by 75 BPS and increasing the reverse repo rate by 25 BPS with a view to ensure finer alignment of the weighted average call rate (WACR) with the repo rate. Pursuant to above policy, the reverse repo rate under the LAF stands adjusted to 6.0 per cent and the marginal standing facility (MSF) rate to 7.0 per cent. The Bank Rate which is aligned to the MSF rate also stands adjusted to 7.0 per cent. The new rates pursuant to changes announced by RBI are as under.

The Central Bank continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent of NDTL of the banking system through auctions; and continue with daily variable rate repos and reverse repos to smooth liquidity.

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Mr. Surendra Naik is a retired Chief Manager from Indian Overseas Bank and Founder, Chief Editor of www.bankingschool.co.in. He worked at IOB for three and half decades and specialized in Credit Appraisal & Forex.